To make an underwriting decision, the underwriter should gather and analyze information to determine what hazards the applicant presents.
Hazards are condition that increase the chance of a loss occurring.
Analyzing Hazards
An underwriter must evaluate four categories of hazards:
· Physical hazards
· Moral hazards
· Morale (attitudinal) hazards
· Legal hazards
Physical Hazards are tangible characteristics of property, persons, or operations that tend to increase the probable frequency or severity of loss.
Moral Hazards are dishonest tendencies in the character of the insured (or applicant) that increase the probability of a loss occurring.
Morale Hazards (also known as attitudinal hazards) involve carelessness about, or indifference to potential loss on the part of an insured or an applicant.
Legal Hazards are characteristics of the legal or regulatory environment that affect an insurer’s ability to collect a premium commensurate with the exposure to loss.
Hazards in a legal environment might include court decisions that interpret policy language in a way unfavorable to insurers.
CHAPTER 5 : UNDERWRITING
